Economic impacts of TTIP in Ireland...Economic impacts of TTIP in Ireland Main economic impact in...

Economic impacts of TTIP in Ireland

Martin H. ThelleDublin, 27 March 2015

Department of Jobs, Enterprise and Innovation


Purpose of the Study

2

Objectives

● Quantify the sectoral and overall macro-economic

impacts of the TTIP on the Irish Economy

● Identify key sectors

● In-depth analyses of key sectors

Approach

● Large scale model from the CEPR (2013) study

● Adapted to the Irish economy and sectors

● Stakeholder consultations

Introduction

Current trade between Ireland and the US

3


Ireland’s trade in goods with U.S.

4

Value of Imports

Value of Exports

0

5

10

15

20

25

Billion Euro

Pharmaceuticals dominate goods exports

5

Value of goods exports to the US, 2013

Note: Irelands export to the US.

Source: Copenhagen Economics based on data from Irish CSO

Export to US

€ billions

0,1

0,3

12,8

1,0

3,7

0,1

0 5 10 15

Agri-food

Beverages and tobacco

Other primary sectors

Pharma and chemicals

Machinery

Misc. articles

Other man. goods

Commodities

70% is pharmaceuticals,

chemicals and

related products


Ireland’s exports to the US

6

Composition (% of total goods + services)

Source: Copenhagen Economics based on GTAP9 data.

0,0%

0,0%

0,3%

0,4%

0,9%

1,0%

1,7%

2,8%

4,6%

30%0,1%

0,1%

0,1%

0,2%

0,2%

0,2%

0,3%

0,3%

1,0%

1,6%

3,4%

10%41%

Construction

Sea transport

Communication

Personal service

Other transport

Other services

Air transport

Finance

Business and ICT services

Insurance

Vehicles

Energy

Beef

Agri-food

Metals

Wood and paper

Other special goods

Dairy

Other man. goods

Processed food

Electric machinery

Other machinery

Pharma chemicals

Primary agriculture

Goods exports

Service exports

~40%

~60%

Economic impacts of TTIP in

Ireland

A strong Ireland-US trade relation

7

49%

16%

0%

10%

20%

30%

40%

50%

60%

IRE

UK

GER

DEN

BEL

AU

T

EU

28

FRA

ITA

SW

E

NL

PO

R

FIN

LU

X

CZE

HU

N

SLV

MLT

EST

SPA

PO

L

CYP

LIT

GRE

RO

M

SLO

BU

L

LAT

Note: Based on value of exports for total goods exports. Share of exports to the US relative to total extra-EU export.Source: Copenhagen Economics based on data from Eurostat.

Share of extra-EU export of goods destined for the US market

Current barriers to transatlantic trade

8


Tariffs are generally low – but peaks for certain products

9

Tariffs applied by the US on imports from the EU

Agriculture average 6.6%

Industry average 1.7%

Total average 2.2%

Tariffs applied by the EU on imports from the US

Agriculture average 12.8%

Industry average 2.3%

Total average 3.3%Source: Tariff averages from Cepii (2013)

Irish exporters pay in excess of USD 300m in tariffs to the US Treasury per year.


Non-tariff barriers and regulation

10

Regulation is legitimate

o ensuring consumer information

o improving health

o product safety

o preserving the environment

Regulation in itself does not hinder trade

… but differences in regulation and procedures to

comply these may increase the cost of selling in foreign

markets

o Familiarisation costs

o Conformity assessment costs

o Certification costs

o Adaptation costs

o Blocking products


Non-tariff barriers may affect firms in several ways

11

NTBs implies both

a) Upfront fixed costs of selling in a foreign market

b) On-going variable costs of exporting to that market

This in turn affect firms’

i) Probability to export (to a country or a product)

ii) Value of export

iii) Export prices

Impact can measured as a tariff equivalent, but impact

differs from that of a tariff – e.g. they do not yield any

fiscal revenue, and NTBs can be a heavier burden on

SMEs.


Cost impact estimates and ‘actionability’

12

Objective:

Reduce costs for exporters, without

compromising the existing levels of

protection of safety, health, environment.

Cost equivalent of NTBs in the US for imports from the EU

Manufacturing goods average 22%

Cost equivalent of NTBs in the EU for imports from the US

Manufacturing goods average 25%

Source: CEPR (2013)


Cost impact estimates and ‘actionability’

13

Objective:

Reduce costs for exporters, without

compromising the existing levels of

protection of safety, health, environment.


Manufacturing goods average 22% -> 16%

Cost equivalent of NTBs in the EU for imports from the US

Manufacturing goods average 25% -> 19%

Source: CEPR (2013)

‘Actionability’ = expectation that around one ¼ of the costs

resulting from regulatory differences can be reduced by TTIP.


NTBs differ from sector to sector

14


Food and beverages, average 73%

Pharma and chemicals, average 19%

Electrical machinery, average 15%

Source: CEPR (2013)

Main results

15


This is an EU-US agreement … not Ireland-US

16

● TTIP will boost EU GDP by €120 bn and the US GDP

by €90 bn (CEPR, 2013)

● Realising an untapped potential

● Limited trade diversion

● Trade with third parties will go up

TTIP will change how Irish firms:

● …trade with the US

● …trade with rest of EU

● …trade with the rest of the world

Trade liberalisation – and in particular NTB reductions

– has different impacts on SMEs and MNEs

Main results


Main economic impact in Ireland: Large and positive

17

More trade

● Overall Irish export up by 3.8% to 5.0%

● Overall Irish import up by 4.3% to 5.3%

Higher economic growth and welfare

● Irish real GDP up by 1.1% to 1.5% (EU avg. 0.5%)

● Investment up by 1.5% to 1.9%

Higher wages and more export-related jobs

● Real wages up by 1.5% to 1.9%

● Export increase is estimated to correspond to 5,000 to

10,000 additional export-related jobs in Ireland.

Main results


Macro-results with current and future base year (2030)

18

Source: Copenhagen Economics based on CGE-simulations by prof. J. F. Francois 2014

1,1%

3,8%

4,3%

1,5% 1,5%1,5%

5,0%5,4%

1,9% 1,9%

0,0%

1,0%

2,0%

3,0%

4,0%

5,0%

6,0%

GDP Exports Imports Real wages Investment

Current baseline Projected baseline

Pct. change from baseline year


0,45%

0,48%

0,12%

0,07%

0,0%

0,2%

0,4%

0,6%

0,8%

1,0%

1,2%

GDP change

Lower tariffs and lower NTBs for goods are main sources of economic impact in Ireland

19Source: Copenhagen Economics based on CGE-simulations by prof. J. F. Francois 2014

Total GDP change

+1.1%

Lower tariffs

Lower NTBs for goods

Lower barriers for services

Spillovers

TTIP implies reduction of

transatlantic trade barriers,

which result from these

elements of the agreement:

Main sectors

20


Opportunities are expected mainly in…

21

Manufacturing

● Pharmaceuticals and chemical industry

● Electrical machinery

● Other advanced machinery

Services

● Insurance

Agriculture and processed food

● Overall increase in exports

● Attention to certain subsectors such as dairy and beef


Pharma and electronics are driving the trade effects

22Note: Change from baseline. Estimates are based on Ireland’s trade flows in 2013 according to the CSO. Source: Copenhagen Economics based on CGE-simulations by prof. J. F. Francois 2014

Goods trade changesPredicted increase with TTIPTotal export and import numbers (incl. both the US, rest of EU and RoW)Change from baseline, € billionsusing current base-year

Impacts in Manufacturing (non-food)

0,2

0,1

0,1

0,1

0,2

0,3

0,5

0,4

0,6

-0,1

0,3

0,5

1,8

3,0

Metals

Wood, paper, publishing

Motor vehicles

Energy and petrochemicals

Other Manufacturing

Other transport equipment

Agri-food

Other machinery

Pharmaceuticals and chemicals

Electrical machinery

€ billions

Exports

Imports


Insurance and financial up. Contraction in business service/ICT

23

● Small increase in overall service exports

● Significant increase in service imports

● Service output largely unaffected

Irish service exports are predicted

to increase in

● Insurance (incl. pension funding,

except compulsory social security)

● Financial services (financial

intermediation)

…while decrease in Irish export of

● Business, professional and ICT services

● Other services

Impacts in services

● Maritime transport

● Air transport

● Finance

● Insurance

● Business/ICT

● Communications

Services EU

8%

2%

11%

11%

15%

12%

US

8%

2%

32%

19%

4%

2%

Service barrier estimates

Source: CEPR (2013) and Ecorys (2009)


Dairy and processed food up. Challenges in beef.

24

● Exports of processed foods and dairy go up

● Exports of primary agriculture and beef could go down

● Output in beef and primary may drop 2-3%. Dairy up 2%.

Impacts in agri-food

Scenario 1

US quota +

50,000 metric

tons

Scenario 2

US quota +

75,000 metric

tons

Changes in billion Euro relative to 2013

Exports Imports

Primary production -0.02 0.06

Beef 0.04 0.08

Dairy 0.16 0.07

Processed Food 0.09 0.08

Total 0.27 0.30

Changes in billion Euro relative to 2013

Exports Imports

Primary production -0.02 0.06

Beef -0.01 0.13

Dairy 0.17 0.07

Processed Food 0.10 0.08

Total 0.23 0.34

50% tariff reductions

+ NTB reductions


Ireland

25

Conclusion and closing remarks


Ireland

Summary

26

● TTIP will have a large and positive impact on the

Irish economy

● TTIP will boost Irish GDP by 1.1% or €2.0 billion

● Exports will increase by 3.8% and require 5.000-

10.000 export-related jobs in Ireland

● Real wages will increase by 1.5%

o slightly higher for low skilled (1.9%)

o Slightly lower increase for high skilled (1.2%)

● Main sectors of opportunities for Ireland

o Pharmaceuticals and chemicals

o Electrical machinery

o Other machinery

o Agri-food (notably dairy and processed food)

o Insurance


Ireland will have the means and time to adapt

27

TTIP will strengthen Ireland’s most productive sectors

Sector composition will anyway change over time.

There is time to adapt and find appropriate policy

responses.

Certain sectors (beef and primary agriculture) will

require careful consideration to limit negative impacts:

● Maintain certain tariffs

● Moderate increase of quotas (and consider composition hereof)

● Maintain equivalence of standards – ensure that US imports must

meet the same standards as EU producers concerning animal health,

traceability and environmental standards and hormone-free beef

● Ensure that meeting EU standards do not have unwarranted

negative effects on US exporters


Closing remarks

28

● Tariffs and NTBs for goods dominate the impact for

Ireland, but service barriers are not to be neglected

● The opening of beef and primary agriculture need to

be considered carefully, and opportunities for dairy

and processed foods needs to be pursued

● Productivity gains from TTIP likely to be important

● TTIP has considerable gains, and requires timely

policy considerations to manage the long-term

adjustment in particular sectors

● Important to position Ireland’s sectors and companies

to pursue opportunities

● The potential benefits are substantial, but hinge on

difficult issues: NTB actionability.

This will not be easy.

Contact

29

Martin H. Thelle

[email protected]

Copenhagen Economics A/S

Sankt Annæ Plads 13

DK-1250 Copenhagen K

copenhageneconomics.com

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